Global Equity Markets, 11 September 2023

Commentary: good news spook markets

While being rather light, last week’s US economic calendar mostly reported better-than-expected results. The services PMI surprised on the upside and reached 54.5, while both initial and continuing jobless claims came in lower than expected. Positive economic news pushed the treasury yields higher in anticipation of tighter monetary policy. As a result, equities experienced losses over the week. Larger stocks displayed more resilience, as S&P 500 equal-weighted index underperformed its market-cap weighted peer by 0.6 ppt. Meanwhile, the small-cap benchmark, Russell 2000, delivered significant losses. Importantly, the decline in Apple and large semiconductor stocks, such as NVIDIA, significantly catalyzed the downtrend. In contrast, due to higher oil prices, the energy sector continued to rally, gaining 3.5% since the end of August.

While the resilience of the US economy has been a key theme in 2023, the main driver of this resilience, the American consumer, has started to face pressure. As estimated by JPMorgan, the pandemic savings totaling $2.1tn have now reached $0.2tn, implying that consumers may have to choose between cutting consumption and resorting to more credit, which, in current interest-rate environment, is much costlier than usual.